Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Halloween Treat: Toyota Motors

An irresistible force, with no immovable object in sight.

Gather round, little children, and hold out your trick-or-treat buckets. It's All Hallows' Eve, and as I'm feeling generous, I'm giving out free shares of Toyota Motors(NYSE:TM) to trick-or-treaters one and all. Never fear; your parents should have no objections to this treat -- each Toyota share is high in iron content, contains plenty of fiber, and has no sugar added.

Oh, drat. At $88 and change per stub, I'm afraid it looks like even one share apiece of this $140 billion company is going to be too big to fit into that little jack o' lantern of yours. I guess you'll have to buy your own. But don't be disappointed. Even if you can't get the shares for free, I think you'll find the prices on offer quite attractive.

Best in classWhen you consider the world's car companies (something you'll start doing, oh, about the time you hit age 15 and a half), it's not always clear who's "best in class." Some have bigger market shares. Others are more profitable. Still others, like General Motors(NYSE:GM), pay rich dividends -- whether they've got the profits to back them up or not. Take a gander at this chart:

Company

Net margin

Trailing P/E

Yield

U.S.Market Share

Toyota

6%

14.3

1.3%

12.2%

Nissan(NASDAQ:NSANY)

6%

10.3

2.2%

5.8%

Honda(NYSE:HMC)

5.4%

12.2

1.2%

8.2%

DaimlerChrysler(NYSE:DCX)

1.8%

16.2

3.8%

13%

Ford(NYSE:F)

1.5%

6.0

4.8%

18.4%

General Motors

negative

negative

7%

27.3%

Financial data collated from Capital IQ. Market share data current as of April 2005.

From the above, it's pretty clear to this Fool that Toyota and Nissan are at the top of the car heap. The two companies are tied for the title of "most profitable," and while neither one has yet amassed enough of a reputation to challenge Ford or GM for U.S. market dominance, Toyota is getting awfully close. Investors' willingness to pay nearly 40% more for a stake in Toyota than for an equal stake in Nissan further suggests that Toyota is king of the road.

Beyond the numbersWhile numbers are useful for summarizing a company's "story," however, they lack the eloquence of prose. So if I may, allow me to wax poetic on why Toyota's the tastiest treat in any investor's bucket of potential investments.

Back in July, I argued the counterintuitive thesis that Toyota's a quintessential Rule Breaker, despite its mammoth size. To summarize the points I made back then:

While Detroit was still hemming and hawing about whether there would ever be a mass market for hybrid gas-electric vehicles, Toyota went ahead and created one.

As carmakers around the world simultaneously declaimed Chinese low-cost labor as the bane of automotive profits and rushed into mainland China to set up factories exploiting low-cost Chinese labor, Toyota took the bold move of doing China one better. Cheap labor may trump expensive labor, Toyota thought. So what's cheaper than cheap labor? Free labor. In a word: robots.

Taking the next logical step, Toyota thought to itself, as long as we're building robots anyway, why not commercialize them, too? Sell them to consumers. Make some more profits.

So, yes, Virginia, Toyota is a big company. But some companies are like chocolate bars. The bigger they are, the better.

Just because a company is big, and maybe even a tad expensive, that doesn't mean it's bad for your portfolio. It may be fattening -- but in a good way. In fact, atMotley Fool Stock Advisor, Fool co-founder David Gardner makes a good living by picking apparently pricey stocks and watching their prices continue to soar. Since the newsletter began printing, his recommendations have trounced the market averages by about a 4-to-1 margin. To see David's picks in action,sign up nowfor a free month of the service, at no cost to you. No tricks, we promise.

Fool contributor Rich Smith owns no shares of any company mentioned in this article.

Author

I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.